14 September 2013
Six ways to generate steady income :: Perfios
In uncertain economic times, these can help you add to your monthly income.
We are living in uncertain times. Changes tend to be sudden and quick not giving a person enough time to adjust. Loss of jobs, high inflation and high volatility in investments are some of the things we have to live with today. The security that a person used to enjoy in a 9 to 5 job, fixed deposits and insurance policies, is a thing of the past. The loss of active income source or reduction in the monthly take home coupled with burgeoning costs of daily necessities is the order of the day. It is in such tough times that one realises the importance of having a passive source of regular income.
Gone are the days when only retirees would need a steady source of passive income. Individuals today are increasingly looking for options to supplement their active income by passive incomes such as rent, interest income and dividend income.
Although real estate investment in a residential or commercial property can be a great source of passive income in the form of rent, not everybody can afford it. Debt investments or fixed income instruments are the key sources of generating a regular income. Coupled with the fact that debt offers diversification and safety of capital, it proves to be an excellent case for investment. There are also a couple of other options from the mutual funds stable, which can provide a regular source of income.
Let us look at some of the options available for a steady passive income:
The author Aditya Prasad is chief evangelist at Perfios
Ruchir Sharma Analyses India's Centre-States Equation
Ruchir Sharma generally spends one week every month in a developing
country. As head of emerging market equities and global macro at
Morgan Stanley Investment Management, few people know the emerging
markets better. In 2012, his book Breakout Nations - In Pursuit of the
Next Economic Miracle, became a best-seller. Sharma says India’s
growth boom from 2003-11 was the result of global factors and the
flood of easy money. “The entire boom of the last decade, where growth
accelerated from 5-6 percent to 8-9 percent, was totally global in
nature. It had nothing to do with India-specific factors. And that
boom is now unwinding. Now can we undershoot 5-6 percent for a year or
two? Yeah, we can,” says Sharma. The following are excerpts from his
free-wheeling interview to Forbes India.
Q. Recently, you wrote an article in Foreign Policy magazine titled
“The Rise of the Rest of India”, in which you talk about Indian states
that have done well over the past few years. What are the factors that
make for a breakout state?
A very simple definition is that the state has been able to
consistently grow above the national average over a five- to 10-year
period. Often you can associate that growth to some change in policy
or leadership which has taken place. It is the same as the concept
that I have used in my book Breakout Nations.
Q. Which Indian states are potential breakout states or have already broken out?
The states where the most impressive results have been seen are
Gujarat, Bihar, Madhya Pradesh Odisha, Chhattisgarh, Delhi, etc. These
are the places where typically you have seen growth. The ones where
the most impressive delta, or change, has taken place have basically
been Bihar, Odisha, Madhya Pradesh and Chhattisgarh. That area has
done well.
Q. What about Gujarat?
Gujarat has done well. But Gujarat was already doing well in the
previous decade. It’s impressive [performance] is that it has done
better from a higher base. Similarly for Maharashtra, growth rates
have been okay, but in the last couple of years they have begun to
fall. And Maharashtra is so dependent on the legacy industrial base,
or the whole golden triangle of Mumbai, Pune and Nashik, that I don't
know how to call it a breakout state necessarily.
country. As head of emerging market equities and global macro at
Morgan Stanley Investment Management, few people know the emerging
markets better. In 2012, his book Breakout Nations - In Pursuit of the
Next Economic Miracle, became a best-seller. Sharma says India’s
growth boom from 2003-11 was the result of global factors and the
flood of easy money. “The entire boom of the last decade, where growth
accelerated from 5-6 percent to 8-9 percent, was totally global in
nature. It had nothing to do with India-specific factors. And that
boom is now unwinding. Now can we undershoot 5-6 percent for a year or
two? Yeah, we can,” says Sharma. The following are excerpts from his
free-wheeling interview to Forbes India.
Q. Recently, you wrote an article in Foreign Policy magazine titled
“The Rise of the Rest of India”, in which you talk about Indian states
that have done well over the past few years. What are the factors that
make for a breakout state?
A very simple definition is that the state has been able to
consistently grow above the national average over a five- to 10-year
period. Often you can associate that growth to some change in policy
or leadership which has taken place. It is the same as the concept
that I have used in my book Breakout Nations.
Q. Which Indian states are potential breakout states or have already broken out?
The states where the most impressive results have been seen are
Gujarat, Bihar, Madhya Pradesh Odisha, Chhattisgarh, Delhi, etc. These
are the places where typically you have seen growth. The ones where
the most impressive delta, or change, has taken place have basically
been Bihar, Odisha, Madhya Pradesh and Chhattisgarh. That area has
done well.
Q. What about Gujarat?
Gujarat has done well. But Gujarat was already doing well in the
previous decade. It’s impressive [performance] is that it has done
better from a higher base. Similarly for Maharashtra, growth rates
have been okay, but in the last couple of years they have begun to
fall. And Maharashtra is so dependent on the legacy industrial base,
or the whole golden triangle of Mumbai, Pune and Nashik, that I don't
know how to call it a breakout state necessarily.
‘Defensive stocks are holding up the index’ Head-Equities, Executive Vice-President, DSP BlackRock :: Business Line
I don’t think that we may go back to the 2008-09 lows both in terms of absolute index levels and valuations.
The indices aren’t falling sharply because defensive stocks now account for a 65 per cent weight in them, and they would not decline 60-70 per cent, says Anup Maheshwari, Head-Equities, Executive Vice-President, DSP BlackRock Investment Managers. Excerpts from an interview:
Your flagship equity funds, DSP BlackRock Top 100 and DSP BlackRock Equity, seem to have slipped in performance. Why?
Though our equity performance lagged until a month ago, a lot has changed in the last one month. Most of our equity funds are in the first quartile for a long horizon and second quartile in the shorter term. It’s the positioning which makes a fairly significant difference in this market.
The underperformance of DSP BR Equity fund may be attributed to its mid-cap bias.
The fund is being managed with an equal mix of large-cap and mid-cap stocks. Unfortunately 2013 has not been a great year for such funds. A few mid-cap stocks have led to the bulk of underperformance.
For instance, we have lost quite a bit in some property names, which we thought were the better ones in the property space. But this underperformance is cyclical. These stocks are cheap and offer good value. The Top 100 fund’s performance has also improved in the last one month. DSP BR Equity fund has consistently outperformed market every year in the last 12 years. Barring the run in the current year beginning January 2013 and in 2009, DSP BR Top 100 also managed to outperform the market for the rest of the period.
Morgan Stanley Research, Key Regional Debates: Economics: Rise in Real Rates
Key Regional Debates:
Economics: Rise in Real Rates – Why It Feels Like the 1990s?
Equity Strategy: Will the rising interest rate continue to give equities pressure to de-rate?
Credit Strategy: Is Asia now in the adverse part of the credit cycle?
FX Strategy: Are AxJ currencies stabilizing now?
Oil: Will rising tensions in Syria propel oil higher? How will macro headwinds affect oil markets?
Base Metals: What is the impact of interest rate pressure on the warehouse trade?
Key Country Debates – India
Economics: How Long Will Funding Risks Prevail?
Our View: India has been running a persistently high current
account deficit alongside negative real rates since the credit crisis.
The high current account deficit (CAD) was being funded as long as
the US ran negative real rates. However, the rise in US real rates
has exposed the economy to funding risks with pressure on the
currency. The sharp depreciation pressure on the currency has
forced RBI to explicitly initiate monetary tightening and lift real rates.
We believe that India will remain exposed to the trend of the US
dollar and real interest rates as long as India’s current account
deficit remains higher than a more sustainable level of 2.5% of GDP
and CPI inflation remains higher than 7%. In the near term (within
six months), while we do expect some moderation in CPI inflation
and the current account deficit, it will remain high. During this
period, the rupee and interest rate environment in India will remain
highly dependent on the expectations of the Fed’s monetary policy
action (India Economics: Longer Duration Slowdown Risks Vicious
Loop )
Equity Strategy: Should Investors Stay Away from
Banks?
India’s policy response to the global financial crisis has been to reduce
public savings to boost growth. The collateral damage has been
persistent consumer inflation and declining corporate savings or profit
share in GDP. Consequently, in the past five years, debt has been
transferred from the public sector to the private corporate sector (the
opposite of what’s taken place in DM). Persistent inflation has deflated
public debt relative to GDP – but it has also punctured corporate profits
(and, thus equity), causing corporate financial leverage to rise.
The world’s reserve currency is no longer interested in funding India’s
external deficit (caused by the persistent fall in savings). Thus, it
becomes imperative for India to reduce this deficit. The only path forward
is to keep real rates high at the cost of growth à la 1998. The return on
assets (ROA) for Corporate India has plummeted to all-time lows. The
only reason for ROE to be higher than its historical low is that debt is
higher than ever. However, with high interest rates, this will change in
the coming months. Given the similarities with 1998, the valuation
template is also 1998. No doubt, the absolute multiple – especially the
ever-reliable P/B – is about to enter the bottom decile – a point from
where losing money is a rarity. However, this does not work when the
equity yield is less than the short-term yield – as in 1998. The short-term
yield hinges on US outcomes. If the US labor data remain strong, Indian
yields will struggle to fall. In the end, of course, India’s macro imbalances
will moderate because of high real rates (as in 1998) and cause a
correction in yields. From a portfolio perspective, bulk of the pain resides
in the banks whereas US$ hedges will likely outperform the market
Economics: Rise in Real Rates – Why It Feels Like the 1990s?
Equity Strategy: Will the rising interest rate continue to give equities pressure to de-rate?
Credit Strategy: Is Asia now in the adverse part of the credit cycle?
FX Strategy: Are AxJ currencies stabilizing now?
Oil: Will rising tensions in Syria propel oil higher? How will macro headwinds affect oil markets?
Base Metals: What is the impact of interest rate pressure on the warehouse trade?
Key Country Debates – India
Economics: How Long Will Funding Risks Prevail?
Our View: India has been running a persistently high current
account deficit alongside negative real rates since the credit crisis.
The high current account deficit (CAD) was being funded as long as
the US ran negative real rates. However, the rise in US real rates
has exposed the economy to funding risks with pressure on the
currency. The sharp depreciation pressure on the currency has
forced RBI to explicitly initiate monetary tightening and lift real rates.
We believe that India will remain exposed to the trend of the US
dollar and real interest rates as long as India’s current account
deficit remains higher than a more sustainable level of 2.5% of GDP
and CPI inflation remains higher than 7%. In the near term (within
six months), while we do expect some moderation in CPI inflation
and the current account deficit, it will remain high. During this
period, the rupee and interest rate environment in India will remain
highly dependent on the expectations of the Fed’s monetary policy
action (India Economics: Longer Duration Slowdown Risks Vicious
Loop )
Equity Strategy: Should Investors Stay Away from
Banks?
India’s policy response to the global financial crisis has been to reduce
public savings to boost growth. The collateral damage has been
persistent consumer inflation and declining corporate savings or profit
share in GDP. Consequently, in the past five years, debt has been
transferred from the public sector to the private corporate sector (the
opposite of what’s taken place in DM). Persistent inflation has deflated
public debt relative to GDP – but it has also punctured corporate profits
(and, thus equity), causing corporate financial leverage to rise.
The world’s reserve currency is no longer interested in funding India’s
external deficit (caused by the persistent fall in savings). Thus, it
becomes imperative for India to reduce this deficit. The only path forward
is to keep real rates high at the cost of growth à la 1998. The return on
assets (ROA) for Corporate India has plummeted to all-time lows. The
only reason for ROE to be higher than its historical low is that debt is
higher than ever. However, with high interest rates, this will change in
the coming months. Given the similarities with 1998, the valuation
template is also 1998. No doubt, the absolute multiple – especially the
ever-reliable P/B – is about to enter the bottom decile – a point from
where losing money is a rarity. However, this does not work when the
equity yield is less than the short-term yield – as in 1998. The short-term
yield hinges on US outcomes. If the US labor data remain strong, Indian
yields will struggle to fall. In the end, of course, India’s macro imbalances
will moderate because of high real rates (as in 1998) and cause a
correction in yields. From a portfolio perspective, bulk of the pain resides
in the banks whereas US$ hedges will likely outperform the market
Citi Global THEME-book September 2013
Energy 2020
“The Unimaginable: Peak Coal in China” is the title of another “Must C” report from Citi’s global commodity team. This
builds on their extensive Energy 2020 shale work & well read report “Global Oil Demand Growth – The End is Nigh.”
The rapid build out of coal plants for power generation in China caused capacity to double between 2004-10 to near
700-GW. This growth was almost equivalent to the entire size of the US coal fleet ! By 2012 China’s thermal coal
demand accounted for 50% of global consumption, yet forecasts for continued strong growth look optimistic.
The team argue that downward shifts in China’s GDP & energy intensity, robust growth in renewables & strong
improvements in energy efficiency point to a possible peaking before 2020. They offer a range of scenarios.
Pollution is important & the global increase in carbon emissions by 2020 could be cut by a quarter. However this work
has significant repercussions for multiple global commodity markets & would impact coal export countries (e.g.
Mongolia, Australia, Indonesia, Russia & the US). Coal prices have fallen, but forward curves are in steep contango.
Heath Jansen & team highlight stocks exposed to coal, including Sell rated Bumi Resources & New World Resources.
For the diversified miners 21% of Glencore’s revenues are from coal, & 12% for African Rainbow Materials.
Adding to the changing mix in energy, the US DOE authorization of Lake Charles (2-Bcf/d) raises total US LNG export
capacity to 5.6-Bcf/d. Our commodities team’s initial estimate of 12-Bcf/d by 2020 may yet prove conservative
“The Unimaginable: Peak Coal in China” is the title of another “Must C” report from Citi’s global commodity team. This
builds on their extensive Energy 2020 shale work & well read report “Global Oil Demand Growth – The End is Nigh.”
The rapid build out of coal plants for power generation in China caused capacity to double between 2004-10 to near
700-GW. This growth was almost equivalent to the entire size of the US coal fleet ! By 2012 China’s thermal coal
demand accounted for 50% of global consumption, yet forecasts for continued strong growth look optimistic.
The team argue that downward shifts in China’s GDP & energy intensity, robust growth in renewables & strong
improvements in energy efficiency point to a possible peaking before 2020. They offer a range of scenarios.
Pollution is important & the global increase in carbon emissions by 2020 could be cut by a quarter. However this work
has significant repercussions for multiple global commodity markets & would impact coal export countries (e.g.
Mongolia, Australia, Indonesia, Russia & the US). Coal prices have fallen, but forward curves are in steep contango.
Heath Jansen & team highlight stocks exposed to coal, including Sell rated Bumi Resources & New World Resources.
For the diversified miners 21% of Glencore’s revenues are from coal, & 12% for African Rainbow Materials.
Adding to the changing mix in energy, the US DOE authorization of Lake Charles (2-Bcf/d) raises total US LNG export
capacity to 5.6-Bcf/d. Our commodities team’s initial estimate of 12-Bcf/d by 2020 may yet prove conservative
Encore of the dotcom bust? :: Business Line
Small/medium standalone online stores offering a limited set of me-too products could find it hard to sustain their business.
During the past few years India has a seen a mushrooming of “dotcoms”, especially of the B2C (business-to-consumer) e-commerce type.
Almost every conceivable consumer product seems to have a few dotcoms selling it these days. In a market that’s getting more and more crowded with little differentiation between competitors other than price, surprisingly, there seems to be no stopping the new entrants.
What’s interesting is that the players are resorting to traditional media such as TV and print to break the clutter and make themselves visible; isn’t that a bit ironic?
LEARN FROM HISTORY
It definitely seems like a déjà-vu of what happened in the US in the 1990’s. One would expect a few lessons to have been learnt from the earlier dotcom boom, since it was followed by a rather nasty burst, but apparently not.
Market participants seem to believe that this time it’s different. In the world of brick and mortar retail, a few key factors that customers use to decide where to shop are: Location (proximity), comfort, price and product range.
In an e-commerce model, all stores are equally accessible and comfortable from a customer standpoint; so, that leaves price and product range as key factors.
Larger multi product stores are likely to offer lower price and larger variety. That’s why players like Amazon have succeeded, while many smaller, single product e-commerce rivals have had to close shop in the US.
Of course, even the successful players required long periods of continuous investment in building scale, without any free cash flow.
Another pertinent lesson that I believe came out of the previous dotcom bubble was that there are some products/services that are just not viable to be sold online or at least there is no significant value addition perceived by customers compared to offline model, for example, the groceries experiment by Webvan.
OPTIMISM AND RISKS
This does not seem to deter entrepreneurs who come up with start-up ideas for new shopping portals (which sound very similar to the old ones that bit the dust) and VC funds who are willing to back them by paying premium valuation to get in.
Everyone seems to believe that their dotcom would be the last man standing in this highly competitive industry that is bound to undergo consolidation sooner or later.
There are a few aspects that make the e-commerce business a tempting opportunity to latch on to, such as low entry barrier and instant access to a national/ international market.
But the challenge is in retaining customer loyalty, especially given the transparency in price comparison and promotional offers across stores.
SUCCESS MODELS
There is a reason behind the success of Walmart and Cosco in the brick-and-mortar world that may be worth studying for success in the online world as well.
From Jeff Bezos’s experience, being a large online store that offers a wide cross-section of products under one roof, helps retain customers through better schemes and offers better prices through effective bargaining with suppliers.
Also, the shop-in-shop model, where smaller retailers can directly sell on a portal like Amazon, makes it attractive for niche product companies as well.
The ability to track customers, offer targeted discounts based on customer profile and enable them to avail attractive offers through cross-promotions has proved very successful for Amazon.
Regular brick-and-mortar stores that have an online presence as an auxiliary/value add for their customers may still thrive since they already have an existing customer base which they are catering to and do not depend on online customers alone to generate income.
However the small/medium standalone online stores offering a limited set of me-too products could find it hard to sustain their business.
That is, unless there is something that can significantly differentiate them from their larger peers which already have first-mover advantage and have gained scale.
DIFFERENTIATORS
Today, the Indian retail e-commerce industry seems to think that having dedicated shopping portals that focus on a specific product categories (such as jewellery, shoes or bags) is a novel concept they bring to the table.
wonder if this is indeed a differentiator that is valued by the customer or something that would enable such players to compete better against rivals that offer much more products under the same roof.
During the height of the dotcom boom, there were standalone dot-coms that focussed on all things including baby diapers, but we all know what happened to them.
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